When it comes to buying or selling a home, an escrow account can be a great way to protect both buyers and sellers. An escrow account is a convenient way to pay taxes and insurance, and it can also be used to pay homeowners association fees. But what are the benefits and drawbacks of using an escrow account? The main benefit of using an escrow account is convenience. Instead of having to write multiple checks or search for payment receipts, you only have to worry about making one payment each month.
This can help you optimize your monthly budget, especially if you live in a community with a homeowners association. In some cases, an escrow account may be required by your mortgage provider. The usual rule requires a minimum of two months' worth of expenses on the mortgage security account, although the limit may be higher for higher-risk mortgages. Even if an escrow account isn't required, you'll still need to pay your taxes and insurance somehow.
Another benefit of using an escrow account is that it can help you manage sudden increases in your property tax bill or insurance premiums. If your escrow account falls short due to the increase, the managing entity will normally cover the difference temporarily. However, there are some drawbacks to using an escrow account. For example, you may not realize the change until the end of the year if your property tax bill or insurance premiums suddenly increase.
Additionally, you may have to pay fees for the escrow agent's services as well as other fees related to closing the sale. Overall, escrow accounts can be a great way to protect buyers and sellers when selling homes and offer a convenient way to pay taxes and insurance. However, it's important to understand both the benefits and drawbacks before deciding whether or not to use one.